Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: 1) Will the payment of part or all of an employee's bonuses in the form of phantom shares of a subsidiary corporation result in an SDA? XXXXXXXXXX 4) Will GAAR be applied to the proposed transactions?
Position: 1) No. XXXXXXXXXX 4) No.
Reasons: 1) The plan satisfies 6801(d) of the Regulations. XXXXXXXXXX 4) The provisions may not have contemplated this type of arrangement but it is clearly within the wording of the law.
XXXXXXXXXX 2000-004062
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation") (XXXXXXXXXX)
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided in subsequent letters and facsimiles and during our various telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the Corporation, none of the issues involved in the ruling request
(i) is in an earlier return of the Corporation or a related person,
(ii) is being considered by a tax services office or tax centre in connection with a previously-filed tax return of the Corporation or a related person,
(iii) is under objection by the Corporation or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued to the Corporation by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed plan and purpose of the proposed plan is as follows:
Facts
1. The Corporation is a taxable Canadian corporation XXXXXXXXXX. The expression "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.
The Corporation's head office is located at XXXXXXXXXX. The Corporation files its tax returns with the XXXXXXXXXX Tax Centre and is located within the area served by the XXXXXXXXXX Tax Services Office located at XXXXXXXXXX.
2. XXXXXXXXXX.
3. The Corporation has established a comprehensive benefit program for its employees that includes XXXXXXXXXX.
4. The cash component of compensation paid to employees of the Corporation is determined according to one of the following methods depending on job XXXXXXXXXX.
Proposed Plan
5. The Corporation proposes to establish a deferred compensation plan for eligible employees (the "Plan"). The Plan will be effective from the date the advance income tax ruling is granted.
6. The articles of a taxable Canadian corporation that is related to XXXXXXXXXX Corporation, XXXXXXXXXX ("Subco") XXXXXXXXXX of special classes XXXXXXXXXX.
7. An employee of the Corporation will be eligible to participate in the Plan for a particular year if the employee's cash remuneration for the immediately preceding calendar year exceeded $XXXXXXXXXX or he or she is otherwise selected by the Corporation as being eligible to participate (a "Participant"). XXXXXXXXXX An employee must re-qualify each year (XXXXXXXXXX ) to participate in the Plan for the following year. A Participant may appoint a beneficiary to receive amounts under the Plan in the event of his or her death.
8. A Participant may elect to defer the receipt of XXXXXXXXXX annual cash compensation XXXXXXXXXX.
9. In respect of each year, a Participant must elect in writing whether or not to defer XXXXXXXXXX and the XXXXXXXXXX to be deferred. The election must be made and filed with the Corporation before the Participant would otherwise be entitled to receive XXXXXXXXXX. Elections must be made within the time limit established by the Corporation and filed with the Corporation annually. An election, once made, may not be revoked for the year to which it relates. Participants will be able to elect to receive phantom stock units representing XXXXXXXXXX Shares of Subco in respect of their deferred XXXXXXXXXX Compensation (the "PSUs").
10. A notional account will be established for each Participant ("Notional Account"). The number of PSUs allocated to a Participant and the value of those units will be recorded in the Participant's Notional Account. XXXXXXXXXX.
11. XXXXXXXXXX.
12. Each Participant that elects to have XXXXXXXXXX Compensation deferred will be allocated PSUs under the Plan. XXXXXXXXXX The PSUs allocated to a Participant under the Plan will vest immediately upon allocation.
13. A Participant will have no legal ownership of or beneficial interest in the XXXXXXXXXX Shares XXXXXXXXXX of Subco by virtue of the allocation of PSUs associated with the XXXXXXXXXX Shares of Subco. For greater certainty, a PSU will not entitle a Participant to any shareholder rights XXXXXXXXXX, including without limitation, voting rights, dividend entitlements or rights on liquidation.
14. XXXXXXXXXX.
15. XXXXXXXXXX.
16. In the event of any stock dividend, stock split, combination or exchange of shares, consolidation, spin off or other distribution affecting the fair market value of the XXXXXXXXXX Shares of Subco, the number of PSUs XXXXXXXXXX will be adjusted accordingly XXXXXXXXXX.
17. A Participant will not have any right to receive any benefits under the Plan until he or she retires or terminates employment (including death) XXXXXXXXXX.
18. All benefits under the Plan will be distributed to a Participant (or to the Participant's beneficiary in the event of death) no later than the end of the calendar year immediately following the Termination Date. The amount of the benefits payable to a Participant will depend on the value of PSUs credited to his or her Notional Account, determined at a point in time in the period commencing one year before the Participant's Termination Date and ending with the payment date. XXXXXXXXXX.
19. The Plan will be administered by a committee of persons appointed by the Corporation. The Corporation will pay all costs and expenses associated with establishing the Plan. XXXXXXXXXX.
20. No amount will be paid to, or in respect of, a Participant under the Plan or pursuant to any other arrangement, XXXXXXXXXX compensate for a downward fluctuation in the value of XXXXXXXXXX Shares of Subco nor will any other form of benefit be conferred upon, or in respect of, a Participant for such purpose.
21. The terms of the Plan will provide that the Corporation can unilaterally amend or terminate the Plan at any time except with respect to rights that have accrued to a Participant at the date of the amendment or termination. Notwithstanding the foregoing, any amendment or termination of the Plan shall be such that the Plan continuously meets the requirements of paragraph 6801(d) of the Income Tax Regulations (the "Regulations"), or any successor provision thereto.
22. The Plan will be unfunded. XXXXXXXXXX.
23. XXXXXXXXXX.
Purpose of the Proposed Plan
24. The purpose for establishing the Plan is to encourage the retention of employees of the Corporation who are believed to contribute significantly to the financial success of the Corporation.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed plan and purpose of the proposed plan, and provided that the terms of the Plan are as described above, we rule as follows:
A. The Plan will not constitute a retirement compensation arrangement, as that term is defined in subsection 248(1) of the Act.
B. Except for those amounts identified in Rulings C and D below, no amount will be included for the purposes of the Act in the income of a Participant in respect of the Plan by reason only of the implementation and operation of the Plan. For greater certainty, no amount will be included for the purposes of the Act in the income of a Participant in respect of the payment by the Corporation of the costs relating to the implementation of the Plan.
C. When cash is paid by the Corporation in satisfaction of some or all of a resident Participant's PSUs as described in 18 above, the resident Participant will include the amount paid by the Corporation, before any applicable withholding taxes, in respect of the portion of the Participant's PSUs paid by the Company in cash in his or her income under subsection 5(1) of the Act. XXXXXXXXXX.
D. When cash is paid by the Corporation in satisfaction of some or all of a non-resident Participant's PSUs as described in 18 above, the non-resident Participant will include the amount, attributable to services rendered in Canada, paid by the Corporation, before any applicable withholding taxes, in respect of the portion of the Participant's PSUs paid by the Company in cash in his or her income under subsection 5(1) and subparagraph 115(1)(a)(i) of the Act. XXXXXXXXXX.
E. The Plan will be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations and will therefore be exempted from the definition of a "salary deferral arrangement", as contained in subsection 248(1) of the Act, will not constitute an investment contract, as that term is defined in subsection 12(11) of the Act, and the allocation of PSUs to a Participant's Notional Account will not constitute interest income from an investment contract pursuant to subsection 12(4) of the Act.
F. Subject to paragraph 18(1)(a) and section 67 of the Act, any cash amounts or other property referred to in Rulings C and D that are paid by the Corporation in a particular year in respect of Participant and any costs paid by the Corporation in respect of the implementation of the Plan will be deductible by the Corporation in accordance with section 9 of the Act.
G. Subsection 245(2) of the Act will not be applicable as a result of the transactions occurring under and in accordance with the proposed Plan, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the Plan is implemented by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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